On the Price of Consumer Intellectual Property

[danieldwilliam]

Consumer IP is now a non-rivalous and non-excludable good.  I think this implies a reduction in supply unless we change the funding model from a private pay per use to a more socialised funding method.

 

Large parts of intellectual property are now both non-rivalous and non-excludable. By non-rivalous I mean that everyone who wants to use the item can use it without reducing the use other people get from the good. Only one person at a time can drive my car but two people can read the same book or listen to the same musical recording at the same time. Two people can use the same design as a template for building something. My using a piece of intellectual property doesn’t prevent anyone else from using it and gaining some benefit from it.

That IP is non-rivalous has long been recognised.

I think that large parts of IP have become non-excludable.  Specifically, IP that is directly consumed, like books, films or music rather than IP that is used as a template for physical things has become non-excludable.

It is very difficult to stop you copying intellectual property.  How Not Very depends on your ability to control access to the copies, your abilty to monitor compliance with conventions on copying and the number of primary users of the intellectual property and what you have to do to the intellectual property in order to gain economically from it.  If the intellectual property can only be used if you turn it into a physical item in an expensive factory, like the design for a car, it is harder to copy it, sell it and not be noticed.  Consumable IP which you can enjoy just by listening to it and which you can copy by dragging an icon on a PC is easy to copy and distribute.

Non-rivalous and non-excludable goods tend to be public goods. It’s almost impossible not to socialise them. Like national security or clean air, if one person has it we all have it.

Recent advances in information technology mean that it is now much easier to copy and distribute certain types of valuable intellectual property.  Music, video and books used to require some form of physical media to carry the intellectual property. This physical items were traded, physically, face to face. This media was difficult to reproduce. Then it became easier. Now the physical media can be dispensed with entirely and the trading (or passing on) can be done remotely and anonomously.

I think technologically it is neigh on impossible to prevent piracy – that is the accessing of content with out paying the producer or her agent for it.

So, consumable IP has become a non-rivalous and non-exludable good.

What does this tell us about the buying and selling of consumbable IP?  That’s tricky.

Classically, a reduction in the market price for a good will drive suppliers of that good out of the market.  Supply of consumable IP will fall until a new equilibrium of supply and demand is reached. A market price of zero implies a market supply of zero.

Some would argue that the production of consumable IP will continue as artists are not only interested in the financial rewards of their labour.

At the naïve end some suggest that new content will spontaneously arise for the love of art.

My critisism of this position is that there is a significant difference between the raw product and the finished product that we are used to paying for and enjoy consuming.

All consumable IP benefits from the input of technical and craft skills in addition to the original auteur’s efforts.  This is not typically supplied free. The people who provide these services have to eat. They also have their own projects to be working on. Why would they prioritise copy-editing a minor masterpiece when their own love poems lie unfinished?

The sound recording technician might have a love of sound and technical machinary. I’m willing to bet that she wants to be out recording sounds she finds interesting and not the caterwauling of some pubescent distant harmony singing group mithering on about bumping, grinding and yo ho ho-ing. To get her into the studio to operate the studio equipment is going to take cash.

To buy the studio equipment is going to take cash. The guys working in the factory in Germany or Korea aren’t building this stuff for love.

All parts of the supply chain require compensation and not all parts of the supply chain are going to contribute for the love of some stranger’s Art.

I also think that amatuer auteur will have less time to produce works, less time to refine their work and their skills and less time to engage with editing and craft skills that supports their work.

At best the de-professionalising of consumable IP means a reduction in the quality of the final output. I think this quality reduction will be significant.

Others suggest that as most actors and writers don’t make a full time living at their art making a living as an artist isn’t in fact an important consideration for them.  Perhaps for some.  More many I think they engage in an enjoyable hobby with the hope of hitting the big time.  Removing the big time reduces some supply.

Some point to advertising as a source of revenue. I think advertising revenue is unlikely to be useful for static content. By static content I mean content that doesn’t go off, newspapers, live commentary or live events. It doesn’t much matter to me if I watch the latest episode of my favourite series today or in a few weeks time. If I can get hold of an advert free copy next week I’m unlikely to sit through adverts.  I’m not saying that advertising on the internet is doomed.  Far from it.  I’m not saying that artists won’t be able to make some money by selling advertising on their blogs.  I think that the days of free-to-air content being supported by embedded advertising are limited.

However, it’s certainly true that a zero market price doesn’t imply that there will be no new work created.

There are other ways artists are supported in their work for example grants, residencies and commissions.

There is also a great reservoir of existing work to be enjoyed.

I think the inevitable classical implications of a zero market price are a reduction in the quantity and quality of the supply of new consumable IP. How servere this reduction is we’ll find out in the next ten years.

The key questions are, is new content valuable enough to some consumers that they will pay for it to be made available to all consumers and how do we organise the collection and disbursement of the necessary cash?

Possible answers to the second question include direct payment for creation or socialised payment for use of content.

Payment for creation, can be either patronage or commissioning.

By patronage I mean a longer-term arrangement of financial support in exchange for the production of content. These could be private single user arrangements. The old style patronage which funded so many Baroque musicians. It could be formally socialsed and mandated, or semi-public such as Writer in Residence at a university or a Poet Laureate. It could be a mass private affair with many individuals clubbing together to support an artistic individual by subscription.

Individual works could be commissioned by individuals, groups of individuals or by the state.

So there are number of ways of in which we could pay directly for the creation of new content and have some say in what is created.  All of these methods have been tried in the past and as a mechanism for transfering money to artists in exchange for great art they’ve been proven to work.

We could also socialise the payment for consuming pre-existing content. This could be done privately. Pay-per-view TV is one version of this that currently works.  If sufficient of us voluteer to continue paying a subscription for the use of existing content then we can continue to “buy” content from content creators.

We could socialise the payment for content through the state and mandate the collection and distribution of money.  State broadcasters paid for out of general taxation or ring-fenced fees can commission content on our behalf. We could levy taxes on the tools for accessing content and treat the use of the tools as a proxy for consuming the content.  A tax on broadband or a license fee for the internet.  We could go down a fully socialist route and have content creators as direct employees of the state paid for out of general taxation.

We’re just going to have to accept that if we want new content enough to pay for it we have to be prepared for others to enjoy it for free. What remains is the old adage that he who pays the piper calls the tune.

Comments

[danieldwilliam.livejournal.com]

Your LJ readers don’t pay you directly for reading your journal(1) – but they do pay for the advertising indirectly and this pays for the site maintenance and a bit of a profit for the folk running it. If they paid you directly you’d have to pay hosting fees.

There are two things going on here. One is the ability of content users and content creators to short circuit the existing distribution networks and share less of their profit with, mainly, the physical distribution arms of publishers. The second is the ability of content users to access content without paying anyone at all for it.

More generally, payment for IP is in a process of transition. There are still content users who are doing things the old fashioned way. Me and my mum and you by the sounds of it.

And think there is something about brand as an indicator of quality kicking around which your mate Bill draws out.

Folk who buy his books know him. They know what they are getting and they know that he will provide a product that meets the quality standard they expect – for the non-artistic elements of quality – typesetting, copy-editing etc as well the artistic ones.

This branding of quality, which used to be done by his publisher but now appears to be done by using his name is important I think. One of the services that existing channels for IP provide is a quality control regime.(2)

I also think there are issues of inertia here.

I’d be wary of reading too much about the future of new content creators into how things are currently operating for successful authors. I don’t think new technology has fully broken through yet. (3) I don’t think piracy has really broken through yet. I’m not sure how easy it is for non-technically minded people to do piracy compared to going to Waterstone’s to buy a physical book.

I suspect that holders of existing IP, both the content and the reputation and brand that go with the content, will want to put the wagons in a circle around their existing assets. I think there are two ways of doing this. Either fight very vigorously to make people stick to the old way of doing business. This involves the kind of the prohibition activity that we’ve seen with drugs which will ultimately make it more expensive and harder to do business with pirates.

The other alternative is to make doing business in what looks like the old fashioned way but is really a mix of social fund and patronage as easy and pleasant as possible.

People who make it easy to do business with them will be able to use existing protocols to extract cash from their work for longer.

There is also something here about the complexity of the work being created and how much the allied skills cost as a proportion of the whole. For a book I think it’s about 50:50 author : allied skills. 1 author and a handful of allied skills working adding up to 1 author’s worth of effort. For music

Given that copyright last for, what, life of author plus 70 years I reckon we’re going to be operating at least two system for the whole of the 21st Century.

(1) and very good value it is, too.
(2) Less important if you are only paying £0.99 for a book and are prepared to stop reading it after a few pages. Which I’ve done with one of the Baen free books.
(3) It’s still painfully difficult for me to watch BBC iPlayer on my TV. Literally painful.